A Statement of Cash Flows tracks what’s coming into your business and what’s going out of your business during a specified accounting period.
You can think of it as a compressed version of your small business’s checkbook with a few other items that affect your cash thrown in.
It is a helpful tool and an annual cash flow statement ought to be prepared for most small businesses...unless you are a very small business.
How detailed it gets depends on the size of your business. However the following is a general format you can go by to generate your statement of cash flows...
Your heading will specify the time period. For example, the heading may state ”For the Three Months Ended March 31, 20XX” or ”The Year Ended December 31, 200XX”.
Cash Flows from Operating Activities: This section reports a summary of cash receipts and cash payments from operations. It includes the following:
Cash Flows from Investing Activities: This section reports the cash transaction for the acquisition and sale of permanent assets and investments. This section could include:
Cash Flows from Financing Activities: This section reports the cash transaction related to equity financing by the business and borrowings. It could include:
The “Cash Flows from Operating Activities” is probably it most complex section because there are two methods for preparing this section: the direct method and the indirect method. Both methods will yield the same result, but different procedures are in each one.
The direct method reports the sources of operating cash and the uses of operating cash; however, the necessary data may not be readily available; so many small business owners use the indirect method.
The indirect method reports the operating cash flows by beginning with the net income from your income statement. Then the net income is adjusted for revenue and expenses that do not involve the receipt or payment of cash.
Learn both methods because although the indirect method is easier to prepare, a lot of loan officers require the direct method...which...by the way...requires you to compile an additional operating activities according to the indirect method too.
|Sources Of Cash (additions):|
|Cash received from customers||$ 8,000|
|Uses Of Cash (subtractions):|
|Cash paid for inventory||$ 2,000|
|Cash paid for insurance||$ 500|
|Cash paid for selling expenses||$ 1,500|
|Taxes paid||$ 1,000|
|Net Cash from Operating Activities||$ 3,000|
Cash Flow Statement
For the year ended Dec. 31, 200X
|Cash Flow From Operations|
|Net Income||$ 2,000|
|Additions(Sources of cash)|
|Increase in accounts payable||$ 300|
|Increases in accrued income taxes||$ 100|
|Subtractions (Uses of cash)|
|Increase in Accounts Receivable||$ (1,500)|
|Increase in Inventory||$ (250)|
|Net cash flow from operations||$ 1,650|
|Cash Flows from Investing Activities|
|Cash Flows Associated with Financing|
|Notes payable||$ 300|
|Net change in Cash||$ 550|